The Stealth Hard Insurance Market sounds ominous doesn’t it? In a way it is ominous and in a way insidious.

In insurance-speak, a hard market is a seller’s market. Think of the rising garage insurance costs and coverage limitations you saw beginning in the Fall of 2001 lasting through 2003. We see fewer insurers offering dealers coverage and premiums were going up. That’s a “Hard Market.” Beginning in 2004 we saw rates stabilize and even decrease a bit through the end of last year. A few more insurers enter the dealership arena. Maybe it wasn’t what we’d refer to as a “Soft Market” like the late 1990’s but it certainly was a softer market than we’d seen a few years earlier.

So why does garage insurance go through these pricing cycles? There are any number of pieces to that puzzle, depending on which cycle we’re in. However, the one big piece that affects every insurance cycle is insurance company investment income. When investment income is high, insurers will, when forced by competition, drop their prices to pick up market share and increase cash flow to feed their investment animal. Generally, when investment income diminishes or investment losses are the rule, insurers try to raise premiums to make up for the investment losses. This very scenario played out in the late 1990’s when the stock market was soaring and insurance rates were dropping. After the bursting of the tech bubble in 2000 and the stock market losses related to 9/11…premiums skyrocketed.

There’s no question where we are today. Insurers have taken a big investment hit like all the rest of us. Companies like AIG and Hartford are all over the news for it. Higher rates are not far behind and in some cases are already here.

This brings us back to the Stealth Hard Market. In 2002 when your insurance rates went up, you saw it in higher premiums. It was obvious. This time it’s not so obvious because you’ve downsized. You’ve probably downsized both the number of employees you have and the amount of auto inventory you have on the lot. Your premiums are based on the number of employees you have and your inventory levels. So if your premium remains the same as last year and you have fewer employees and less inventory your rates must have gone up. So when this crazy market turns around and you begin to re-hire, you’ll be paying higher premiums than you were before you downsized.

The only way to be certain you are paying the lowest possible premium in any market cycle is to create a competitive environment where insurers compete for your coverage each and every year. Unfortunately, you can’t wait until your insurer gives you a renewal price to decide what you want to do. It’s too late then. The prudent dealer begins the bid process 90 to 120 days before renewal and it ready to negotiate coverage, deductibles and premiums at the end. As a result you will know you have the best premium and the best coverage available in any market cycle.